What happened in the markets: 8 Jan - 12 Jan 2024
Inflation is expected to remain low with signs of further decrease, but reaching the Fed's 2% target may be challenging and require patience.
The timing of the first rate cut could cause market volatility, but overall, Fed policy is likely to ease in the latter part of the year.
The rise in forward earnings and market highs confirms the upward trend in stocks.
Opportunities exist to buy during market pullbacks, diversify into underperforming equity segments, and extend duration of investments ahead of an easing Fed cycle if currently overweight in CDs and cash investments.
Stocks experienced a mostly downward trend on Friday, but managed to edge higher for the week. Traders closely examined the first set of fourth-quarter earnings and two significant inflation reports. Despite an unexpected decrease in producer price inflation, optimism was tempered by a surge in oil prices and declines in airline and health insurance company stocks.
The banking sector also drew attention due to a flurry of earnings releases. Two-year Treasury yields dropped to their lowest levels since May, falling 24 basis points for the week. This unexpected decline in producer prices reversed trader pessimism stemming from a surprise increase in consumer prices.
The Dow Jones inched up 0.3% for the week, while the S&P 500 gained 1.8% and the Nasdaq surged 3.1%.
Last week at a glance
PPI & CPI Reports
The Producer Price Index (PPI) for December declined by an unexpected 0.1%, as opposed to expectations for a 0.1% gain. On the other hand, Core PPI (without food & energy) did not change from November, contrary to expectations for a 0.2% increase.
Meanwhile, numbers for the Consumer Price Index (CPI) came in slightly stronger than expected. CPI increased 3.4% in December from a year ago, a slight increase from last’s month’s 3.1%. Core CPI (excludes food and energy) on the other hand continued to slow, falling to 3.9% from 4%. These readings are the lowest in two and a half years and are largely inline with forecasts and expectations. However, it is important to note that core inflation is still above the Fed’s target of 2%. Although inflation seems to be trending lower, the “last mile” to 2% might take a little more time than when CPI was higher than 6% in 2023.
Oil Prices Soar As Red Sea Route Affected
West Texas Intermediate (WTI) futures soared up to 4% to hit the $75 per barrel mark. This surge came on the heels of U.S. and British airstrikes targeting Houthi-controlled regions in Yemen. President Biden has taken a firm stance, stating, "These strikes are in direct response to Houthi attacks that jeopardized trade and threatened freedom of navigation." He further emphasized his resolve by declaring his readiness to "direct further measures" if the situation calls for it. The Houthis, undeterred, have vowed to persist in their targeting of ships navigating the Red Sea, a critical maritime route.
The repercussions of the conflict are palpable in the shipping industry, with rates climbing sharply as vessels experience significant delays. The cost of shipping a standard 40-foot container has nearly doubled since the onset of the attacks. The economic impact is substantial, with an estimated $200 billion worth of cargo having been rerouted since the attacks began in early December.
Mixed Results From Banks
Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC) have all shared their quarterly report cards. The FDIC's move to recover losses from the protection of uninsured depositors following the collapse of two U.S. banks last year has certainly left its mark on the banks' earnings. With billion-dollar hits across the board, it's clear that the financial landscape is still feeling the aftershocks of last year's events.
"Bank results were mixed, and that was reflected in the varied reaction in stock prices," commented Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. "Net interest income looked OK, and investors were prepared for one-time charges related to the FDIC deposit insurance fund."
Trouble For Boeing
The skies weren't so friendly for passengers on Alaska Airlines (ALK) Flight 1282 when a door plug blew out, causing the cabin of the 737 Max 9 to rapidly depressurize. This incident has cast a shadow over the aerospace industry, particularly for Boeing (BA), the aircraft's manufacturer, and Spirit AeroSystems (SPR), the door plug's manufacturer.
Boeing's shares took a nosedive, dropping 9% in premarket trading on Monday, while Spirit AeroSystems experienced a steep descent of over 20%. The market's reaction was swift, reflecting the gravity of the situation and the potential implications for the involved companies.
But that's not where the story ends. United Airlines (UAL) also discovered loose bolts on multiple 737 Max 9 planes during routine inspections, a finding echoed by Alaska Airlines. These revelations have amplified concerns about the aircraft's quality controls, sending ripples of unease across the industry.
Hewlett Packard acquires Juniper Networks For Mist AI
Hewlett Packard Enterprise (HPE) has confirmed its acquisition of Juniper Networks for nearly $14 billion. The all-cash deal values Juniper at $40 a share, representing a premium of approximately 32% to its closing price on Monday. This announcement follows reports of a potential transaction, which caused Juniper's stock to surge by 23% and HPE's to decline by almost 9%. The acquisition is expected to enhance HPE's position in artificial intelligence through Juniper's Mist AI, which specializes in optimizing wireless access. Seeking Alpha analyst Chetan Woodun noted that HPE is an undervalued company with the potential to accelerate its growth trajectory through the Juniper acquisition.
11 Bitcoin ETFs approved by SEC
On Wednesday, the SEC finally approved 11 spot bitcoin ETFs after years of rejecting the applications, ending a long wait. This decision came after a fake tweet from the SEC's account led to a spike in bitcoin prices to as high as $47,900. While SEC commissioners had mixed reactions to the approval, the first spot bitcoin ETFs debuted on U.S. exchanges with a strong start, with more than $4.6 billion worth of shares changing hands.
Top movers & shakers🎢
Bank of America (BAC) took a 1% dip after announcing a significant 56% plunge in their fourth-quarter net income. A hefty $2.1 billion fee from the FDIC didn't help their case.
Bank of New York Mellon (BK) is on the upswing, climbing 4% as they sailed past Wall Street's fourth-quarter expectations on both earnings and revenue.
Citi (C) managed to snag a 1% gain despite a fourth-quarter frown. The bank's results didn't quite hit the mark, and they're looking to slim down their workforce by 10%. Tough times ahead?
DocuSign (DOCU) is riding high with a 3.59% jump, thanks to whispers of a takeover battle between private equity titans Bain Capital (BCSF) and Hellman & Friedman. Meanwhile, Bain Capital's shares took a slight 0.39% hit.
Delta Air Lines (DAL) and United Airlines (UAL) are feeling the turbulence, nosediving nearly 9% and over 10%, respectively. The FAA's decision to audit Boeing’s (BA) production line after a 737 Max 9 incident has investors buckling their seatbelts. Boeing's own shares fell 2.23%.
JPMorgan Chase (JPM) is down but not out, with a modest 0.79% loss. Their fourth-quarter net income saw a 15% drop, but hey, a 12% revenue rise to nearly $40 billion isn't too shabby.
Tesla (TSLA) is on a bit of a downhill, dropping 3.67% amid news of price cuts in China. Is this a strategic move or a sign of slowing demand?
UnitedHealth (UNH) took a 3.39% hit as their quarterly report revealed higher costs that dimmed the shine of their stronger-than-expected earnings.
The week ahead: 15 Jan - 19 Jan 2024
The energy sector may take center stage next week as crude oil futures continued to fluctuate following U.S. and British airstrikes in Houthi-controlled areas of Yemen, contributing to escalating tensions in the Middle East.
On Friday, oil tanker and shipping stocks surged in response to these developments. Additionally, earnings reports are set to increase during the shortened holiday week, with a focus on financial companies.
As we enter the Q4 earnings season, consensus EPS estimates have been reduced by 6% since September, compared to the typical 4% reduction in estimates. However, there is an expectation for an improvement in earnings breadth, indicated by the total number of companies with positive EPS growth, for the third consecutive quarter.
Earnings
Earnings: Tuesday, January 16 - Keep an eye on the earnings reports from Morgan Stanley, Goldman Sachs, PNC Financial, and Interactive Brokers.
Earnings: Wednesday, January 17- Watch out for the earnings releases from Prologis, Charles Schwab, U.S. Bancorp, Kinder Morgan, and Alcoa (NYSE: AA).
Earnings: Thursday, January 18 - Pay attention to the earnings announcements from Truist Financial, KeyCorp, Fastenal Company, and Birkenstock (NYSE: BIRK).
Earnings: Friday, January 19 - Stay tuned for the earnings updates from Ally Financial, Comerica (NYSE: CMA), Fifth Third, and Travelers.
Sources:
https://seekingalpha.com/article/4662682-wall-street-breakfast-what-moved-markets
https://seekingalpha.com/article/4662702-wall-street-breakfast-week-ahead
https://www.edwardjones.com/us-en/market-news-insights/stock-market-news/stock-market-weekly-update
https://www.schwab.com/learn/story/schwab-market-update
*Disclaimer: This information is provided for general information purposes only. Consider your investment objectives, financial resources and other relevant circumstances carefully before investing. This is not an invitation or an offer to invest, nor is it financial advice or a recommendation to buy or sell any investment.
